Major depressive disorder (MDD) has among the highest placebo response rates of any medical illness. Many MDD subjects in clinical trials who undergo treatment with placebo show improvement comparable to those receiving antidepressant medication. Previous research indicates that interpersonal factors and patient characteristics underlie both medication and placebo response in depression, making MDD an excellent illness model for understanding the origins of the placebo response. This application proposes a line of clinical investigation that will elucidate the role of interpersonal factors and patient characteristics in contributing to improvement seen in placebo treatment of MDD. This study will achieve the following four specific aims: 1) to determine whether administration of placebo or medication pills has effects on improvement of symptoms in addition to interpersonal clinical interaction (ICI) for subjects with MDD; 2) to determine whether pretreatment expectations and the strength of the pharmacotherapeutic alliance are related to the likelihood of clinical improvement during interpersonal clinical interaction, placebo, and medication treatment conditions; 3) to determine if there are pretreatment neurophysiologic, symptom, or cognitive characteristics of subjects that are associated with response to placebo in MDD; and, 4) to examine the effects of interpersonal clinical interaction, placebo pill administration, and medication administration, on brain function in subjects with MDD. We will achieve these aims through a three-step research plan. First, we will enroll 120 subjects meeting criteria for moderate to moderately severe recurrent MDD into one of three treatment conditions: 1) interpersonal clinical interaction (ICI) (thorough baseline assessment and subjects interacting with clinical research personnel on a fixed schedule); 2) placebo treatment (PBO) (assessment and interaction as in ICI plus double-blinded treatment with placebo tablets); and 3) medication treatment (MED) (assessment and interaction as in ICI plus double blinded treatment with antidepressant medication). Second, all subjects will be assessed prior to treatment assignment with measures of pharmacotherapeutic alliance with study personnel, expectation regarding treatment, cognitive processing speed, emotional and neurovegetative symptoms of depression, as well as brain electrical activity. Third, subjects will be assessed over the course of eight weeks of treatment with ratings of symptom change, as well as changes in pharmacotherapeutic alliance, expectation, and brain function. At the end of eight weeks, blind will be broken and all subjects referred for naturalistic treatment where they will be eligible to receive medication free-of charge for 10 months. In addition to testing the specific hypotheses, we plan an exploratory analysis in which we will examine factors that may influence placebo response, such as personality characteristics, perceived social support, and health locus of control. The results of this project will lead to better understanding of the mechanisms of the placebo response in MDD.